The automotive retail industry is constantly evolving, and 2025 has brought significant shifts that demanded flexibility and strategic thinking. Despite several spikes and slowdowns throughout 2025 triggered by factors including newly imposed tariffs and expiring electric vehicle (EV) credits, the National Automobile Dealers Association (NADA) reports that it expects new light vehicle sales to finish the year at nearly 16 million units.
From regulatory changes and tax reform to economic pressures and operational challenges, let’s look back at the most significant industry developments from 2025 so your dealership can enter 2026 well-equipped for success.
Tariffs Bring Unpredictability
Tariffs have long affected the price of imported vehicles and parts, but new tariffs introduced by the Trump administration in 2025 created significant upheaval in the automotive industry.
Increased tariffs on imported vehicles and parts made it more difficult for dealers to maintain affordable inventories, forcing many to reconsider their sourcing strategies. Dealerships faced tighter margins and had to absorb or pass on these costs, while also contending with unpredictable supply chains and longer lead times for popular models and replacement parts. As a result, prices have risen and will likely continue to rise for consumers, leading to a decline in demand for new vehicles.
Some retailers are exploring alternative inventory management strategies, such as last in, first out (LIFO), to mitigate these challenges and maintain profitability in an increasingly volatile market.
Economic Challenges Continue
Economic conditions presented further challenges in 2025. Elevated inflation and higher interest rates have made borrowing more expensive for both consumers and dealers. As the cost of financing rises, fewer customers can afford new vehicles. Inventory that once moved quickly now sits longer on the lot, increasing holding costs and prompting dealers to offer deeper discounts or more aggressive financing.
Consumer Priorities are Shifting
Meanwhile, consumer confidence remains uneven. Many individuals, cautious about the economy, are putting off large purchases. At the same time, there’s a notable shift in consumer spending: more people are prioritizing experiences such as travel and entertainment over big-ticket goods like cars. For automotive retailers, this translates into a decline in consumer demand.
EV Sales Plateau
In recent years, electric vehicle sales have been seen as a significant growth opportunity. Many manufacturers invested heavily in EV platforms, production facilities, and dealer training, expecting strong growth driven by government mandates and buyer incentives. However, 2025 has brought an abrupt change to this trajectory, leaving dealers with surplus inventory
With the expiration or rollback of many EV mandates and tax incentives under the One Big Beautiful Bill Act (OBBBA) and state policies, consumer demand for EVs has slowed. As a result, surplus EV inventory has become a widespread challenge, putting additional pressure on pricing and margins.
Talent Shortages Persist
Finding and keeping great employees has always been important in automotive retail, but in 2025, it has been a critical priority. Talent shortages continue to affect the industry, from the sales floor to the service department. Technical roles are especially hard to fill, and turnover remains high among both sales professionals and service techs.
Fraud is Ramping Up
As the industry deals with economic uncertainty and workforce challenges, a less visible threat is growing: internal and external fraud. Dealerships are seeing an increase in financial fraud, including fake loan applications, identity theft, wire fraud, and internal embezzlement. The rapid shift to digital transactions — especially accelerated by the pandemic — has exposed vulnerabilities in many dealerships’ processes, so now more than ever, strong internal controls are essential.
OBBBA Offers New Planning Opportunities
The OBBBA, enacted in July 2025, offers several new opportunities for dealerships while limiting others. Dealers will need to proactively and strategically plan to maximize the benefits of these incentives. There is no one-size-fits-all approach for auto dealerships when it comes to taxes — you should work with an advisor to develop a strategy that works for your dealership. In my January article about 2026 trends to watch, we will delve into greater detail about OBBBA incentives for the automotive industry.
Looking Ahead
The automotive retail industry faced many challenges in 2025, but these trends also present opportunities for those prepared. Dealerships that respond quickly to regulatory changes, adapt to economic realities, manage evolving inventory needs, invest in workforce excellence, and protect themselves from fraud will be best positioned for success.
By staying informed and agile, dealers can not only weather these headwinds but also uncover new ways to drive revenue, retain talent, and deliver outstanding value to today’s consumers.
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